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Potential portfolio to drive future growth

Q3FY24 consolidated revenue grew by 21% YoY, outperforming the industry growth of 16%YoY. The top line was fuelled by growth across all segments, in which core businesses like switches, lighting, and acoustics grew by 14%, 32%, and 8%, YoY, whereas new businesses like LMT, seating, and other businesses grew by 18%, 4%, and 36% YoY, respectively. EBITDA margin came in at 10.8% owing to a superior product mix and lower other expenses. PAT grew by 19.4% YoY. For the year, the company executed the JV agreement with Buehler Motor & Tach-S and received orders from multiple 2W EV OEMs for Traction motors. To meet the upcoming regulatory Airbag demand, Toyota Kosei Minda India has allocated capex of Rs.175cr., to expand its Neemarana plant and install airbag production equipment

Sustained outperformance with new product development.

UML’s product diversification and increasing growth from new products give it better visibility on the revenue front. Enacting the auto norms and enhancing safety features will further lead to an increase in kit value per vehicle across the auto segment. The potential kit value of the EV 2/3W will further increase with the addition of traction motors. The company reiterated that the potential EV kit value for 2/3W is Rs.35,300 per vehicle. The product under production & supply is Rs.27,300/-, new orders received are Rs. 8,000/- respectively. The annual order value from EV 2W and PV is Rs 3,292cr. and Rs 829cr, respectively. Currently, the share from the EV is 12% of domestic 2W revenues, which is higher than the 2W industry penetration of 4%

New orders and expansion.

UML has a robust capex plan of Rs.750cr. for FY24. Incremental orders in the 4W lighting business from Indian and Japanese OEMs I received an incremental order for a 2W switch and heated handle grip from an American marque auto major. The revenue from other segments has grown by 47%YoY in the last 9 months. Within this controller and sensors was around Rs.230 cr. and was expected to cross Rs. 800cr. for the full year. The company is in the process of continuous expansion of its existing product portfolio and the addition of new product lines in alloy wheels, lighting, infotainment, seating, airbags, and blow molding

Valuations

Despite the near-term pressure due to a reduction in the underlying volume and macroeconomic headwinds, we believe stability in commodity prices and chip supplies augurs well. The company is actively increasing its kit value across all segments and outpacing the industry's growth. UML’s strong balance sheet and quick ramp-up reflect higher revenue visibility on a medium- to long-term basis. The stock has always traded at a premium due to its diversified product portfolio and new product offerings, according to changing trends. We value UML at 33x FY26E EPS, arrive at a target price of Rs.792, and maintain our Buy rating